Reporter

Customers will be able to choose from three options: regular, priority and express. Photo: Luis Enrique Ascui

Letters will take up to three days to arrive unless customers pay more for "priority" service as part of a shake-up of Australia Post's dwindling mail service, which is delivering a third fewer letters than it was five years ago.

Managing director Ahmed Fahour announced the proposed cuts to services as the business revealed its mail division lost a record $328.4 million in 2013-14.

Customers will be able to choose from three options – regular, priority and express. Priority delivery will occur five days a week, for a fee, while regular delivery will occur one to two days after priority.

Illustration: Ron Tandberg

The price of a stamp will reflect the speed of delivery, Mr Fahour said. The current cost – 70¢ – was among the cheapest in the world but did not cover the cost of the service, he said, adding that the new "priority" stamp price would reflect the cost of the delivery.

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The elderly and vulnerable will get temporary relief if they open a concession account, which has frozen the price of stamps at 2010 prices until 2017.

The price of a "priority" stamp will need to be approved by the Australian Competition and Consumer Commission. A spokesman for Communications Minister Malcolm Turnbull, who has previously given his support to changes to letter delivery, said he had the right to appeal ACCC's decision.

The end of a fixed-price five-day-a-week service is one of the biggest changes to Australia Post since it was corporatised in 1989.

Mr Fahour said the financial bleeding from the letter delivery service could blow out to a $6.6 billion loss over the next 10 years unless cuts were made.

"Unfortunately, without significant and urgent reform of our community service obligations, the loss in the regulated mail business will overwhelm the entire company and result in the enterprise making a loss in the near future."

Printing Industries Association of Australia chief executive Bill Healey said the drop in letters delivery did not warrant changes to the service.

"While we all recognise the challenges facing the mail industry, a decline of 5 per cent is not the crisis that the CEO would like the Australian community to believe it is," he said.

Australians have flocked to online, blowing a hole in Australia Post's overall profits, which shrank 34.5 per cent to $116 million. Although the parcel delivery division was booming thanks to Australia's love affair with online shopping, Mr Fahour said this year was the last time its revenue could support the letter delivery division.

He said without the "urgent reform", Australia Post would have to ask the federal government for taxpayer support. Ninety-seven per cent of letter-senders are businesses and governments.

In other announcements, from this Christmas, most Australia Post offices will be open on Saturdays and parcels and express post will be delivered on Saturdays.

Mr Fahour said the changes represented what "Australians want".

"Australia Post is now focused on delivering the services that our customers want and need. We are undergoing a period of significant challenge and change," he said.